Tax Incentive Policy for Development of Himalayan and North-eastern States in India
| Author | Piyush Kolhe |
| Published date | 01 March 2017 |
| Date | 01 March 2017 |
| DOI | http://doi.org/10.1177/0019556117689855 |
| Subject Matter | Articles |
Article
Indian Journal of Public
Administration
63(1) 136–156
© 2017 IIPA
SAGE Publications
sagepub.in/home.nav
DOI: 10.1177/0019556117689855
http://ipa.sagepub.com
1 Commissioner of Income Tax, Bhubaneswar, Odisha, India.
Corresponding author:
Piyush Kolhe, Flat No. 717, 7th Floor, Block – Vishnu-1, Balaji Complex, Jharpada, Bhubaneswar
751006, Odisha, India.
E-mail: Piyushkolhe64@gmail.com
Tax Incentive Policy
for Development of
Himalayan and
North-eastern States
in India
Piyush Kolhe1
Abstract
Government of India announced a tax incentive policy for North-eastern and
Himalayan states by which income tax and excise duty exemption of `2,186,330
million was granted for a period of 12 years from financial year (FY) 2004–2005
to FY 2015–2016 to new industrial units set up in these states, with an objective
to boost development. The aim of this article is to evaluate whether these
states have developed as a result of this policy and also to examine whether the
policy has affected the North-eastern and Himalayan states differently. In this
article, the development is measured on six indicators: (i) per capita net state
domestic product; (ii) per capita manufacturing sector state domestic product;
(iii) per capita employment in private sector; (iv) number of industrial units set
up; (v) amount of investment in the industrial units and (vi) human development
index. It is observed that only Himachal Pradesh, Uttarakhand and Sikkim show
development as a result of the policy and even this development has taken place
only in pockets. The policy has failed to give fillip to development in the seven
North-eastern states. As a policy recommendation, this article suggests that the
government should discontinue tax incentives. It should collect taxes on Pan-
India basis and use it on infrastructural development of these states, especially
on those projects demanded by the states.
Keywords
Tax incentive, revenue foregone, development, infrastructure, employment,
human development index
Kolhe 137
A regime of exemptions has led to pressure groups, litigation and loss of revenue. It
also gives room for avoidable discretion. (Shri Arun Jaitley, Union Finance Minister of
India, Budget Speech, 2015)
Introduction
Tax incentives are the easiest to dole out and, therefore, they tend to be the most
favourite of the politicians and governments wanting to make big bang announce-
ments. They are also used as instruments to override a wicked problem. When the
state of Andhra Pradesh was bifurcated into Telangana and Andhra Pradesh, tax
incentives were offered to them for their economic development.1
The countries around the world are concerned with regional imbalances
within their geographical regions. The reasons for imbalances are multifold, such
as historical background, geographical features, uneven distribution of natural
resources, quality and quantity of infrastructure, non-availability of skilled
manpower and leadership role played by the regional politicians. As a result of
these disparities, the governments are confronted with displeasure of the people
located in the undeveloped regions and they are obliged to find ways and means to
implement appropriate policy measures to correct the regional distortions.
Everyone loves a good tax break. Indian tax laws are full of exemptions,
deductions, rebates and concessional rates on various grounds. It is argued by the
beneficiaries that they are beneficial to the economy and society. While such a
claim does not find firm support, these provisions violate the canons of horizontal
equity and seriously erode tax base, necessitating higher rates of taxes. In general,
concessions are not needed when the tax rates are moderate (Chelliah & Rao,
2002). However, Income Tax Act, Central Excise Act and Custom Duty Act are
full of tax breaks. Under the Income Tax Act, there are thirty-five provisions for
corporate taxpayers, twenty-nine provisions for firms and twenty-four provisions
for individual taxpayers of major tax breaks. As regards excise duty, they are
based on general exemption and area-based exemption. In the case of custom
duty, the exemptions are on the basis of commodities and various schemes for
promotion of exports. In the last 12 years, from financial year (FY) 2004–2005 to
2015–2016, the quantum of tax incentive is of `50,845,770 million, as against the
tax revenue of `95,056,360 million, which is 53 per cent.
The Government of India announced an industrial policy for Arunachal
Pradesh, Assam, Manipur, Meghalaya, Mizoram, Nagaland and Tripura in 1997
and for Sikkim, Jammu and Kashmir, Himachal Pradesh and Uttarakhand in FY
2002–2003 (referred to as Group of Eleven States or G11 states, hereinafter).
The stated aim of this policy is to pull them out of economic backwardness and
as a result, the Government of India has given tax and non-tax incentives of
`2,209,040 million in the period of 12 years from FY 2004–2005 to 2015–2016.
The purpose of this article is to evaluate whether these states have developed as
a result of this policy. Among the G11 states, three states, namely Jammu and
Kashmir, Himachal Pradesh and Uttarakhand, are in the Himalayan region of
Northern India and eight states, namely Arunachal Pradesh, Assam, Manipur,
Meghalaya, Mizoram, Nagaland, Sikkim and Tripura, are in the North-eastern
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